Financial Winners & Losers: MBIA

Shares of bond insurers MBIA (MBI Quote) and Ambac Financial(ABK Quote) collapsed Wednesday as Moody's Investors Service threatened downgrades and financial stocks continued sliding for the week.

Moody's said it was considering downgrading the insurers due to concerns over the credit profile. The rating outlook is already negative with the bonds listed at a pristine triple-A, and a cut could bring the debt down to double- or even single-A, Moody's said. Such a rating would affect the company's chances of selling bond insurance. MBIA plunged 15.8% to trade at $5.63 and Ambac plummeted 17% to sell at $2.49.

Mortgage insurer Radian(RDN Quote) also tumbled on the news, dropping 10.2% to $5.31.

The NYSE Financial Sector Index declined 32.19, or 0.5%, to 7,187.98. Overall, the index is down 2.3% for the week, losing 170.80 points so far.

KeyCorp(KEY Quote) also took a hit from a ratings agency. Standard & Poor's downgraded the stock to negative from stable. S&P cited an adverse legal ruling associated with its leasing business. Shares in the Cleveland-based bank dropped 2.5% to $18.28.

State Street(STT Quote) gave back 53 cents to sell at $70.83 after announcing it would sell 35.7 million shares in a bid to raise $2.8 billion. One analyst speculated that the bank plans to make an acquisition with the capital.

Regional bank Frontier Financial(FTBK Quote) dropped 2% when Washington Banking Co. said it was pulling out of an $850 million deal with the bank operator because of regulatory uncertainty. Frontier shares closed at $14.25.

On the positive side, Lehman Brothers(LEH Quote) crawled back from a three-day decline as it gained 2.6% to $31.40. The investment bank received an upgrade from a Merrill Lynch analyst based on valuation. The stock has been trading down amid market concerns about its liquidity position as the company keeps raising capital.